Retirement planning in India is evolving rapidly, and the National Pension Scheme (NPS) has become one of the most reliable long-term investment tools for individuals seeking both security and flexibility. With regulatory changes and updated tax benefits in 2025, NPS continues to stand out as a retirement plan for salaried employees, self-employed professionals, and even government workers.
Understanding its advantages—ranging from tax deductions to flexible investment choices and structured withdrawal rules—can help you make the most of your retirement savings.
The National Pension Scheme (NPS), regulated by the Pension Fund Regulatory and Development Authority (PFRDA), has emerged as one of the most reliable retirement planning tools in India. Designed as a voluntary, long-term retirement savings scheme, NPS allows Indian citizens (residents and non-residents) as well as OCI cardholders between 18–70 years of age to participate. Subscribers can continue or defer their account until the age of 75.
What sets NPS apart in 2025 is its unique combination of tax efficiency, investment flexibility, and structured withdrawal rules, making it a strong pillar for retirement planning alongside other instruments such as the Employees’ Provident Fund (EPF) and Public Provident Fund (PPF).
NPS enjoys a special place in the Income-tax Act with dedicated sections under 80CCD. However, the benefits differ under the Old and New tax regimes.
Here’s a structured table:
| Section | Old Regime (2025) | New Regime (2025) |
|---|---|---|
| 80CCD(1) | Deduction for employee/self contribution within ₹1.5 lakh overall cap (80C). Limit: 10% of salary (20% of gross income for self-employed). | Not available |
| 80CCD(1B) | Additional deduction up to ₹50,000. | Not available |
| 80CCD(2) | Employer contribution deductible up to 10% of salary (14% for Govt employees). | Available; same limits apply. Subject to overall ₹7.5 lakh annual cap on employer contributions to NPS, PF, and Superannuation Fund; excess is taxable. |
Key takeaway:
⚠️ Disclaimer: Tax benefits are as per the Income-tax Act, 1961, and subject to amendments. Consult a tax advisor for personalized guidance.
NPS offers attractive tax deductions that can help individuals reduce their liability under both the old and new regimes. You can learn more about how pension schemes help reduce taxes in India in this detailed guide on Tax Benefits of Using Pension Schemes to Reduce Tax Liability.
NPS stands out because of the choice it offers in asset allocation. Subscribers can opt for:
This flexibility ensures NPS can adapt to both conservative investors and those seeking higher market-linked returns.
Additionally, NPS allows both Tier I (retirement account with restrictions) and Tier II (voluntary savings with free withdrawals), offering further customization to align with liquidity needs.
One of the defining features of NPS is its clear and structured exit framework.
| Scenario | Withdrawal Rules |
|---|---|
| On Retirement (60 years or superannuation) | If total corpus ≤ ₹5 lakh → withdraw 100% lump sum. If corpus > ₹5 lakh → withdraw up to 60% tax-free (u/s 10(12A) and invest at least 40% in an annuity. |
| Premature Exit (before 60, after 5 years) | Withdraw up to 20% lump sum; at least 80% in annuity. Exception: if corpus ≤ ₹2.5 lakh, 100% withdrawal permitted. |
| Partial Withdrawals | Allowed after 3 years; up to 25% of subscriber’s own contributions (not entire corpus); maximum 3 times during tenure. |
| Death of Subscriber | Non-government subscribers: nominees can withdraw 100% lump sum. Government subscribers: if corpus ≤ ₹5 lakh, 100% withdrawal allowed; if > ₹5 lakh, 80% annuity purchase mandatory with balance 20% paid lump sum. |
On retirement, annuity purchase ensures a steady post-retirement income stream. Rules:
This guarantees retirees have a consistent monthly income, even if markets fluctuate.
The framework of NPS offers different features for Government and Private employees:
| Feature | Private Employees | Government Employees |
|---|---|---|
| Employer Contribution | Up to 10% of Basic + DA deductible under 80CCD(2). | Up to 14% of Basic + DA deductible. |
| Death Benefits | Nominee can claim 100% lump sum. | If corpus > ₹5 lakh, 80% must be annuitized, balance 20% paid in lump sum. |
| Flexibility | High, depending on employer’s policies. | More structured under government notifications. |
This distinction ensures both categories enjoy benefits, but government employees often have slightly stricter exit rules. Government employees generally receive higher contributions from their employers, while private sector employees benefit from voluntary contributions. Both groups can maximize their retirement security with careful planning. For broader insights, read our article on Retirement Planning in India.
Opening an NPS account in 2025 is simple:
Management features include:
While the National Pension Scheme (NPS) offers strong tax-saving features, disciplined investing, and structured withdrawal rules, it does come with constraints like mandatory annuity purchases and limited liquidity. If you want to pair these benefits with customizable growth, protection, and flexibility, consider adding these PNB MetLife long-term saving solutions:
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The National Pension Scheme benefits in 2025 can be summarized as follows:
Action steps:
The pension amount from NPS depends on three factors: your total accumulated corpus, the percentage allocated to annuity purchase, and the annuity option chosen. For instance, if your corpus is ₹50 lakh and you annuitize 40% (₹20 lakh), the monthly pension will vary based on annuity rates at the time (e.g., life annuity, joint annuity, or annuity with return of purchase price). Annuity rates are market-driven and provided by IRDAI-regulated insurers.
On retirement, you can:
The national pension scheme benefits in 2025 include:
Yes, premature exit is allowed after 5 years of account opening. In such cases:
NPS offers higher market-linked return potential along with mandatory annuity income, while PPF offers guaranteed fixed returns but without a pension component. Many investors use both together—PPF for safety and stability and NPS for growth and retirement income. For details, see NPS vs PPF.
Yes. Since October 2019, Overseas Citizens of India (OCIs) are eligible to invest in NPS, along with Non-Resident Indians (NRIs). The eligibility age is 18–70 years. If an individual loses OCI status, the NPS account must be closed.
Subscribers can make partial withdrawals for specified purposes like higher education, marriage of children, purchase of house, or medical treatment. The rules are:
As per recent PFRDA circulars, withdrawal processing timelines have been reduced to T+2 working days for:
NPS is a government-backed scheme regulated by PFRDA. While contributions are invested in equity, corporate bonds, and government securities (which carry market risks), the system ensures diversification and transparency. However, returns are not guaranteed as they depend on market performance.
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Disclaimer:
The aforesaid article presents the view of an independent writer who is an expert on financial and insurance matters. PNB MetLife India Insurance Co. Ltd. doesn’t influence or support views of the writer of the article in any way. The article is informative in nature and PNB MetLife and/ or the writer of the article shall not be responsible for any direct/ indirect loss or liability or medical complications incurred by the reader for taking any decisions based on the contents and information given in article. Please consult your financial advisor/ insurance advisor/ health advisor before making any decision.
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